Kathmandu, April 9

Citing ineffectiveness of the revenue exemption facility being provided through the Financial Act, the Ministry of Finance (MoF) has started homework to review the areas of revenue exemption from the next fiscal.

The facility is currently being extended for protection of domestic industries, to facilitate development works, attract investment and encourage formal trade.

Finance Minister Yubaraj Khatiwada said the ministry will review revenue exemption facility and those that do not meet the set objective will not be able to enjoy the privileges extended through the facility from next year.

The government, through the Financial Act, has been waiving customs duty, value added tax (VAT), excise and other taxes in various products to support industrial production, create employment, expedite development projects, among others. However, there has been no proper assessment on how effectively the facility is being used, according to MoF officials.

The government has been providing revenue exemption to over two dozen products.

Office of the Auditor General (OAG) - the external auditor of government's accounts - has said that the revenue exemption facility is in rising trend. Tax experts have said the revenue exemption facility is not wrong in itself, but that the government must scrutinise to ensure that the facility has not been misused. The Revenue Advisory Committee - which comprises experts, government officials and private sector representatives - recommends the finance ministry for such exemptions.

However, as per sources, sometimes the lobby group could also influence the leadership to take decisions as per their interest. The finance minister has to justify the revenue exemption facility to the Parliament if the parliamentarians raise questions. But due to lack of rigorous discussions at the Parliament, many suspect that the facility is largely being misused.

As per OAG's audit report of fiscal 2015-16, the government provided revenue exemption worth Rs 51.31 billion that year. While the audit process of fiscal 2016-17 is ongoing, ‘revenue exemption facility is expected to have gone up in last fiscal', said Ramu Prasad Dotel, spokesperson for OAG.

In the three fiscal years between 2013-14 and 2015-16, the government had extended revenue exemption worth Rs 138.59 billion as per OAG report. OAG had also advised the government to study the impact of extending such facility on concerned industries.

“Until now, the facility has been provided based on hypothesis,” said Dotel. “If it is actually being misused, it is a huge revenue loss for the government.”